Team 4 Amit Tyagi Harmanjit Singh Mohini Jain Nandini Chandrasekhar Rahul Chakraborty

OBJECTIVE Objective

Data DATA
Background Quick Look Issues

Preparation
ANALYSIS Analysis Naive Exponential Moving Average Time Series Forecasting RESULTS SUMMARY & INSIGHTS

INDUSTRY Industry
Very cost intensive Major raw materials used for construction include sand, cement, steel etc. Prices of raw materials are driven by the price of crude oil, indicating

fluctuation in price of the raw materials.

PURPOSE Purpose
To predict cement prices on monthly basis in context of India.

Stakeholders STAKEHOLDERS
Builders/dealers in the construction industry or cement production

companies to plan capacity expansion

Benefits BENEFITS
The forecasts will serve as a valuable tool to help the construction industry make important logistic decisions such as: Timing of purchase Inventory Management Strategically allocate budget in purchasing cement

InThe effect, the outcome betterplanning resource planning and sourcing outcome would bewould better be resource and sourcing leading to increased savings leading to increased savings

SOURCE Sourc

e:

Monthly Crude oil and cement prices from www.indiastat.com

Data available for the period Jan 2009 May 2011 June 2011 Aug 2011

Time TIME Period PERIOD :

FORECAST Forecast Peri

Based on monthly prices of cement and oil for the years 2009 and 2010 Average Price of Cement in Major Consumption (Centers Per Bag of 50 kg (In Rs.241) Monthly Average Price of Indian Basket of Crude Oil (in $/barrel converted to Rs3471)
Crude oil to be explored as a predictor for cement prices

Gaps/Issues in data
Cement prices were missing for the data period Jan 2011 to Mar 2011
Oil Prices were available in US dollar Correlation between Cement Prices and Oil Prices was low at 0.33

Moving Average
Missing data imputation in cement prices using the method of Moving

Average and straight line method Oil prices converted to Indian Rupees using historic conversion rate corresponding to each data point sourced from www.oanda.com

Cement Level: Averages around 237.5 Trend: No clear Trend present in the series Seasonality: No significant pattern Stationary series Peak around the month of April every year

Oil Level: for oil prices is around 3500 Trend: Clear increasing trend Seasonality : No significant pattern Non Stationary Series 2010 values follow a very smooth pattern

Cement data displays monthly seasonality Nave 12-month ahead forecast Forecast values and Error Measurements attached below
290.00 280.00 270.00 260.00 250.00 240.00

Time June. 2011 July. 2011 Aug. 2011

Forecasted Cement Prices 240.00 233.00 225.00

230.00
220.00 210.00 200.00

Parameter
Average Error
Validation Period

Value
-0.30 12.68 16.04 -0.43%

MAE RMSE MAPE

Cement Prices

Nave Forecast

290 280 270 260 250 240 230 220 210 200

Cement Prices

Cement data does not depict trend but has 12 month seasonality Holt-Winter No Trend method of Exponential Smoothing Data partitioned into 24 months Training and 5 months Validation Forecasts on validation set: The RMSE error is lower for the Time Plot of Actual Vs Forecast (Training Data) method than Nave forecasting. Both Exponential and Nave Validation method systematically under Period predicts the cement demand
MAPE MAE
Time

-0.51% 19.24 10.78

Actual

Forecast

RMSE

Time Forecast Jun. 2011 240.10 July. 2011 237.66 Aug. 2011 233.27

LCI 219.09 216.65 212.26

UCI 261.11 258.67 254.27

Time
Jan. 2011 Feb. 2011 Mar. 2011 Apr. 2011 May. 2011

Actual Forecast Error

237.67 238.56 238.69 280.00 276.00 240.10 237.66 233.27 231.33 237.24 -2.43 0.90 5.42 48.67 38.76

LCI
219.09 216.65 212.26 210.33 216.23

UCI
261.11 258.67 254.27 252.34 258.24

Independent Variables : time & Dummy variables for Q1, Q2 and Q3 ( Q4 as Base Quarter) The RMSE error is lower for the method than previous methods. However the method systematically under predicts in validation set Adjusted R 2 for the model is .3345

Mar. 2009

July. 2009

Sept. 2009

May. 2010

July. 2010

260 250 240 230 220 210 200

Jan. 2010 May. 2009 Mar. 2010 Nov. 2009 Jan. 2009

Test Data

Predicted Value

Actual Value

Validation Data

290 270 250 230

210
Jan. 2011 Feb. 2011 Mar. 2011 Apr. 2011 May. 2011

Sept. 2010

Nov. 2010

Independent Variables : time & Dummy variables for each Month( Dec. as Base Month)
260 250 240 230 220 210 200

Test Data

The RMSE error is lower for the method than previous methods. Method has similar errors in validation and test sets Adjusted R 2 for the model is .5364

Predicted Value

Actual Value

300 280 Validation 260 Data 240 220 Jan. 2011 Feb. 2011 Mar. 2011 Apr. 2011 May. 2011

Independent Variables : Change in Crude oil & Dummy variables for each Month( Dec. as Base Month) The RMSE error is lower for the method than previous methods. Method systematically under predicts in validation/Test Set Adjusted R 2 for the model is .5964

Test 260 Data 240 220 200

Predicted Value 290 280

Actual Value

270

Validation Data

260 250 240 230 220 Jan. 2011 Feb. 2011 Mar. 2011 Apr. 2011 May. 2011

Based on Model 3 the forecast for June 2011 is: Point Estimate: 244.67 95% confidence interval is (230.50,258.9)

1 0.5 0 -0.5 -1

Autocorrelation of Residual / Data Set #1

3 4 Number of Lags

INSIGHTS

RECOMMENDATIONS

April and May have at least 10% higher cement prices than December

Cement Prices are affected by previous months change in Oil prices and not oil prices themselves
Crude prices have a positive trend overall last two years.

Inventory should be brought in December for next fiscal year rather than April/May Track changes in crude prices on monthly basis to deduce future cement prices